Albanian Economy: Key Trends and Policy Implications

Monetary Policy and Credit Growth

The Bank of Albania (BoA) has maintained a tight monetary stance in recent years, with interest rates rising to combat inflation. This has led to slower credit growth due to tighter financial conditions.

• Key Points:
  • Interest rates have been raised to control inflation.
  • Tighter financial conditions have slowed down credit growth.
  • Mortgage loans and real estate loans continue to drive positive credit growth.

Housing Market Developments

House prices have increased rapidly, despite the slowdown in credit growth. This has led to significant gains in housing price indices in Albania and Tirana over the past few years.

• Key Points:
  • House prices have increased rapidly.
  • Housing price indices in Albania and Tirana have shown significant gains.
  • The rapid increase in house prices may pose risks to financial stability.

Credit Composition

Unhedged foreign exchange (FX) loans have decreased as a share of total loans, while FX hedged loans and Lek-denominated loans have increased.

• Key Points:
  • Unhedged FX loans have decreased.
  • FX hedged loans and Lek-denominated loans have increased.

Policy Implications

Based on this analysis, the following policy implications are suggested:

• Monitor Credit Developments: The Albanian authorities should continue to monitor credit developments closely, as the credit gap has recently turned negative.
• Assess Housing Market Risks: The rapid increase in house prices may pose risks to financial stability; therefore, the authorities should assess these risks and consider policy actions if necessary.
• Maintain Monetary Policy Tightness: The BoA should maintain a tight monetary stance to keep inflation under control and ensure that credit growth remains sustainable.